Corporation Tax & Company Tax FAQs

Corporation tax is a tax on the profits of limited companies, as well as some other types of organisations. The tax is based on the profits that a company makes during its financial year, after deducting any allowable expenses and allowances and adding back any disallowable expenses (such as entertaining).

For an ordinary company with a twelve-month accounting period and no associated companies, the small-profits rate is 19% at profits of £50,000 or less and the main rate is 25% at £250,000 or more. Between these limits, the company normally pays 25% less Marginal Relief. This produces an effective rate between 19% and 25%; 26.5% is the marginal rate on the additional profit in this band in straightforward cases, not the rate on the whole profit. The limits are reduced for short periods and divided by the number of associated companies including the company itself. Special rules and exclusions, including certain investment companies, can change the result.

Companies are required to file a corporation tax return each year and pay any tax owed within nine months and a day of the end of their financial year.  Larger companies may have different payment dates.

Corporation tax rates for a taxable period depend on the size of the taxable profits of the company (being its taxable income less deductible expenses and allowances).

For an ordinary company with a twelve-month accounting period and no associated companies, the small-profits rate is 19% at profits of £50,000 or less and the main rate is 25% at £250,000 or more. Between these limits, the company normally pays 25% less Marginal Relief. This produces an effective rate between 19% and 25%; 26.5% is the marginal rate on the additional profit in this band in straightforward cases, not the rate on the whole profit. The limits are reduced for short periods and divided by the number of associated companies including the company itself. Special rules and exclusions, including certain investment companies, can change the result.

Corporation tax is due for limited companies based on their accounting period for corporation tax, also known as the financial year or the company's "chargeable accounting period." The corporation tax payment deadline and Corporation Tax return (Form CT600) filing deadline are different.

1. Corporation Tax Payment Deadline: For companies with taxable profits of up to £1.5 million, corporation tax is generally due 9 months and 1 day after the end of the accounting period. For example, if the accounting period ends on 31 March, the corporation tax payment would be due by 1 January of the following year.

For companies with taxable profits exceeding £1.5 million, corporation tax is usually paid in quarterly instalments. The first instalment is due 6 months and 13 days after the start of the accounting period, with subsequent instalments due every three months. These rules may not apply to newly formed companies or those with irregular accounting periods.

2. Corporation Tax Return (Form CT600) Filing Deadline: The deadline for filing your Corporation Tax return (Form CT600) is 12 months after the end of the accounting period. This is separate from the tax payment deadline.

The £1.5 million threshold is adjusted for short accounting periods and associated companies. Exceptions can apply, including for some companies becoming large for the first time. Very large companies are subject to an earlier instalment timetable. Check these rules before assuming that payment is due nine months and one day after the year end.

Please note that these deadlines are general guidelines, and your company's specific circumstances might impact the exact due dates. It is essential to consult with a qualified accountant or tax professional to ensure compliance with tax laws and avoid penalties for late payment or filing.

Both companies and sole traders or partnerships can obtain tax relief for trading losses. Here's a simple breakdown:

1. Companies (Corporation Tax):

If a company makes a trading loss, it has several ways to get tax relief:

1. Carry Backward : The company can offset its loss against the profits from the previous 12 months (provided it was trading in that period). This results in a refund of some or all of the Corporation Tax paid for that earlier period.

2. Carry Forward : Unused trading losses arising from 1 April 2017 can generally be carried forward against the company’s total profits, subject to conditions and restrictions. Older losses are usually restricted to profits of the same trade.

3. Group Relief : If the loss-making company is part of a group of companies, it might be able to surrender its loss to another group company, which then reduces its taxable profit.

2. Sole Traders/Partnerships (Income Tax):

For sole traders or partners in a partnership, trading losses can be relieved in several ways:

1. Against Other Income : A sole trader can offset their trading loss against their other income in the same tax year (or the previous year). This reduces their overall income tax liability.

2. Carry Backward : Ordinary trading losses can generally be claimed against income of the current or previous tax year, subject to conditions. A three-year carryback is not generally available for a continuing business: separate rules apply to early-year losses and terminal losses when a trade ends.

3. Carry Forward : If there's still a loss remaining or the trader chooses not to claim against other income, they can carry the loss forward. The loss can be set against the first available profits of the same trade in future years.

4. Early Years : If the loss happens in the first four tax years of the business, it can be offset against the sole trader's total income, not just trading income, in the three tax years before the one in which the loss was made, starting with the earliest year first.

Remember : There are specific rules and conditions for each method, and not all losses qualify automatically. Also, you can't just choose any method without consideration; there are ordering rules and preferences to follow. It's always a good idea to consult with an accountant to determine the best approach for your specific situation.

In Summary :

When a business doesn't make a profit, and instead makes a loss, there are mechanisms in the tax system to provide relief. This means businesses can offset these losses against other profits or income, either from the past, the present, or future periods, depending on the business structure and specific circumstances.

An illegal dividend in the UK is when a company pays a dividend to its shareholders even though it doesn't have sufficient profits or reserves to cover that payment. Essentially, it's paying out more money than it has legally available. If a company pays an illegal dividend, the directors can be held personally liable to repay it.

Not all UK companies require an audit. A company is usually exempt from an audit if it qualifies as a "small company" for that financial year. To be considered a small company, it typically needs to meet at least two of the following criteria:

1. A turnover of £15 million or less.

2. £7.5 million or less on its balance sheet.

3. 50 employees or fewer.

However, there are exceptions, and some companies may still require an audit even if they meet these criteria, or some might voluntarily opt for one. It's always a good idea to check with an accountant to be certain about your specific situation